My Lords, I support the amendment. I do not have quite as many questions as the noble Earl, Lord Lytton, but I have a similar sense of the injustice and unfairness that are implicit within the Flood Re scheme.
I am not quite sure what the opposite of taking a sledgehammer to crack a nut is, but perhaps it is taking a bucket to stop a flood or maybe it is using the current Flood Re scheme to deal with the domestic flood insurance problems and then excluding more than half of all UK households. I know that there is then the added problem of SMEs, but I totally accept that for the present the scheme is designed to tackle the domestic marketplace.
In my view, the proposed scheme is so hedged about with exemptions that it fails to get to the heart of the domestic flood insurance problem. Even without SMEs, most buildings will not be covered by the scheme. Exclusions include: nearly all leasehold properties; the entire private rented sector; housing association schemes, whether shared equity or let—and are these not the very people whom we are trying to protect?—council houses; homes built after 2009; and properties in council tax band H. Some 60% of all domestic properties are specifically excluded. Flood Re, in this case, is not fit for purpose. It would have been so much more simple, fair, just and equitable to have included all of the above and dealt with the problem of excess demand on funds by either capping individual payouts
or adjusting the level of premium at which Flood Re cuts in. It seems unimaginative to me to exclude 60% of all properties as a way of mitigating the risk.
Incidentally, the average household premium is just under £200, so the 2.2% levy amounts to an average of £4.40, not the £10.50 being bandied about. When I met with the ABI, it seemed to have no satisfactory explanation for the difference in these figures, so I have no idea where the £10.50 came from. The reason I mention this is that, if a £10.50 premium is considered acceptable, and the real figure is actually much less, then maybe adjusting the amount of supplementary levy on the premium could also be a way of mitigating risk in the early years of Flood Re. Just to exclude 60% of the properties surely undermines the whole purpose of the scheme.
Turning to the various unjustifiable domestic exclusions, I will deal with them one by one, starting with properties in council tax band H. First, as confirmed by ABI, the inclusion of such properties would not in any way raise the cost of the scheme. If, as suggested by Hiscox, a cap of, say, £160,000 were put on any one payout from the scheme, their inclusion would not increase by one jot the risk of failure of the Flood Re scheme. Noble Lords should bear in mind that those who are being excluded are not paying the £4.40 supplementary levy or even the £10.50 towards the scheme: they will be paying nearer to £50, £60 or £70, because of the value of their house, towards a scheme that specifically excludes them. They will not all be rich; many of them will be elderly, cash poor and vulnerable.
I of course understand the politics at work here; as I said, this exclusion is an entirely political decision. If they cannot be included in the scheme, however—which, I agree, seems unlikely at this stage—I would strongly support the National Flood Forum’s proposal that they should be helped with any mitigation measures possible, either through locally targeted schemes or from the Flood Re pot once it has been built up, as in Amendment 90ZA, put forward by my noble friend Lord Krebs and the noble Baroness, Lady Parminter. They should not be totally abandoned when they are contributing so much towards the scheme itself.
Turning to post-2009 properties, apart from people in this House and some people involved in the insurance industry, I have yet to find a single person in real life who knows anything about this 2009 cut-off and the effect it may have on their insurance in 2015. Included within that group of innocents are two people who actually work in the insurance industry. I know that some of your Lordships are saying, “Look, we have to make an example here. We must stop developers building on the flood-plains and the only way to do it is to make these properties uninsurable against flood risk”. To me, that misses the point. For a start, society—that is you, me and the local planning authority—gave permission for these houses to be built. Currently, the Government are actually helping these people to buy these houses through their Help to Buy scheme. The Environment Agency only comments on 6.6% of all applications; perhaps it should have some responsibility. My point is that, if we do not want houses built, we have to stop them at source and not just take it out on the poor, unfortunate souls who—probably totally
unknowingly—end up living in these properties either as owners or, worse still, as tenants, who of course are going to be doubly excluded.
Furthermore, to have a blanket exclusion on all post-2009 properties also misses the point. We are not just talking here about houses on the designated flood-plain; we are talking about all houses that represent an insurance risk. We are talking about houses that probably started flooding since 2009 for a variety of reasons. There are more and more examples now of houses flooding because of rising ground-water, even on hillsides. There are many examples of houses flooding from surface water, sometimes because of activities upstream—possibly subsequent to 2009—over which the householder had no control; for example, another development that increases the speed of run-off. There are also houses where the weather pattern has changed and, after two floods, the cost of insurance becomes unbearable. Therefore, just to have a blanket exclusion of all properties built after 2009 seems completely unnecessary and grossly unfair. It is well known that there are several examples, most notably in Hull, where there are properties side by side, one of which will be included and the other, because of this rule, will not be—you can almost guarantee that neither of the owners knew their future fate when they chose which one to buy.
Of course, the biggest exclusion is the leasehold and rented sector. I will leave my sense of injustice about those properties until we get to Amendment 89B from the noble Lord, Lord Whitty.
All in all, I realise that it is probably too late to upset the apple cart of this version of Flood Re at this stage. However, many in the insurance industry are pretty unhappy about it, largely because they know that, when the blatant injustices become obvious, they and not the politicians will get the blame. I hope that the scheme works for those lucky 40% who find themselves included, but it would have been much more imaginative to have made the scheme much more inclusive, if not all-inclusive, and to have mitigated the risk in other ways. I hope that when it comes to the various regulations bringing this scheme into effect, some thought will be given to those who have inadvertently found themselves on the wrong side of the legislator’s pen.